Musings on Strategic Investigation, Performance Improvement, and Rhetoric

So-What (SWOT) Analysis



One thing that makes my palms sweat when reviewing a business plan or strategy document is a SWOT analysis.  Reading one of those two-by-two tables makes me think that my generally very smart, commercial, rational clients, have decided to illustrate what they learned at primary school, or have accidentally inserted a no-idea-is-stupid whiteboard printout from the start of a brainstorming session.

I'm not saying that SWOT doesn't have its place at the beginning of the strategy development process; it does, especially if you start with the "O".

O, for opportunity, forces you to take a moment to look around and speculate where the future pools of profit might be, which is especially useful for bringing out those areas that you're currently not doing anything about.

S(trengths) helps you realise where your sources of competitive advantage might lie.

W(eaknesses) forces you to be realistic about what may need improving, and traits that might put you at a disadvantage.

T(hreats) forces you to look at those things coming over the horizon that might sink you below the water line.

This forced lookaround for factors that may be important is, in my experience, the entire benefit of SWOT.  But it's only of value if you go on to test properly which ones are true and material.  Unfortunately, most plans that I see stop with the SWOT output, and bung the list unqualified into the document.  This is worse than useless; it's foolhardy, because it can set in train a series of actions that are based on barely-substantiated speculation.

From the long list of strengths, weaknesses, opportunities and threats that emerge in the SWOT analysis, how do you know which are actually true as opposed to speculation? Which are material and will affect the entire future of your business, and which are pretty much irrelevant?  Which ones should you deliberately not do something about, for example the weakness in high-end products that would kill your cost advantage if you addressed it?  How do you know which opportunities are the ones to put time and money into, and which are the ones to deprioritise?

If you recognise SWOT's limitations, and treat it as a start point, from which you do some testing with facts, then you can create something valuable from this motley list of brainstormed hypotheses.

Start with the opportunities and ask some standard commercial questions.  How big are they? How well positioned are we to exploit them versus everyone else?  How much does it cost to start exploiting each of them?  How sustainable is the profit stream that comes from each?  Which of them is the most valuable use of a dollar of investment or an hour of management time?  If the business case of any one of them stacks up, what do we do next to get there?

Do the same kind of reality check and so-what test with the strengths, weaknesses and threats.  And you will end up with a short list of credible opportunities and actions, which I promise will pay back the additional time a hundred-fold.

You'll also have fewer business plan readers with sweaty palms asking "so what?".


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk
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How to write an effective business plan (2/3)

In our last post we covered some of the common errors we see in plans we review. In this post we cover the key aspects of an effective plan.

Writing an effective plan

Be clear about who and what the plan is for

You need to think about this to determine what is in the plan and how much you need to explain. The plan is confined to information and context relevant to the target audience to achieve this end. For example, a plan used to attract an external investor will need a market section explaining the fundamentals; one used to generate Board agreement about a new course of action may only need a commentary on recent changes or trends.

Convince yourself first

A good plan needs to convey both passion and credibility. Credibility is the factor that is almost always lacking. The harder the plan writer challenges his own thinking and his own assumptions, the more credible and higher quality the plan. Your own concerns and lack of clarity will come out at some stage during the process, so you need to be the one that takes control - test and pre-empt them before someone else does.

Realise that the plan is step one of many

The most successful, well-written plan will not be the single killer step that by itself secures investment, agreement to proceed, or whatever the ultimate objective may be. It is only step one, to be followed by meetings, questions and challenges.

The role of the plan is to help clarify the opportunity for all involved and build your credibility, so that subsequent discussions are productive and focused on how things are going to get done.

Be brief and clear

The plan needs to contain enough to describe the opportunity, why it is attractive, how you are going to exploit it, and no more. If you are enthusiastic about the opportunity, you will be able to write at-length, most likely well beyond the tolerance level of most readers. You will need to be deliberate in your efforts to bring out the most important points, reduce redundancy, and be clear and specific about anything that is open to interpretation. Use the document to intrigue the reader, not cover every angle.

That covers the key characteristics of the most effective plans we review. In our next post we outline contents of a typical plan.


Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.
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How to write an effective business plan (1/3)

Business plans are vitally important documents, both for raising investment and for generating common understanding about proposals for the future. Most of these plans take weeks to produce, and many are written with the help of corporate finance advisors and other professionals. We have the pain and privilege of being a paid reviewer of plans, and the frightening reality of our experience is that most of them sit somewhere in the range of poor to terrible. However, most of the problems can be fixed with some simple disciplines.

In this three-part post, we list the most common errors we see, and some recommendations for writing a more effective plan.

Common errors

The plan is too long

No one will invest straight off the back of a plan. If they are intrigued by it, they will want to meet you and find out more. The plan needs to be sensible, but if they invest, they are investing in you. They will be backing your ability to achieve the plan or, more likely, something just as good when life inevitably turns out differently. So your objective is simply to say enough that the reader can decide that they either want to meet you or that they are not interested, and no one’s time is wasted as a result.

Whoever your target reader may be, they need to read the plan in one sitting and retain what they read. This means you have 10-20 pages to get your plan across. You cannot possibly detail every idea, initiative and piece of evidence in a ten-page document. So your challenge for the plan is to summarise the important points, just enough to whet a reader’s appetite and either entice them to want to meet you or decide quickly that it’s not for them.

The plan is overtly optimistic, ignoring the risks and negatives

Plan writers naturally try to put their idea across as positively and attractively as possible. This is natural, and it is important to be positive and put across your passion; but most plans end up as blatantly optimistic sales documents, with little thought to risks and downsides. Unfortunately, this propensity increases with the use of poorly qualified advisers.

Readers want to see their concerns being pre-empted and addressed rigorously in the plan, not dismissed or ignored. Your plan is an opportunity for you to put yourself across as a passionate but practical business person, and build your credibility before meeting potential investors. If the plan dwells only on the upside, you come across as unrealistic.

It looks like a filled-in template

Some sections of plans really are necessary most of the time. It’s rare that you don’t need a section discussing the relevant market trends, the distinctive differences of your service or the projected financials. However, crow-barring in a SWOT analysis or a Porter’s Five Forces puts you in serious danger of looking like an amateur business plan writer, rather than a smart professional with a convincing investment proposal. If a section adds to the reader’s understanding in a neat, focused manner, then go ahead with it, but blind application of template business tools will make your plan much worse.

It contains too many broad generalisations

Most plans focus on a specific opportunity in a specific market, but descriptions of the market and the opportunity are often so generalised as to be meaningless. If your plan is for home pet-sitting in London, showing how many millions of cats are bought every year in the UK is almost irrelevant.

Describe your service, your market and the reasons people will buy as precisely as possible. You will need to make assumptions, but as long as you state what they are and why they are credible or conservative, then you have a context that is meaningful to all involved.

It is written in language that impairs the readers’ judgment of the business

It is amazing how many people have a writing style that detracts from the quality of their thinking and business ideas. A business plan is a serious document that needs snappy, simple writing to get the point across: one idea per paragraph, one point per sentence. No sales-speak, no rhetorical questions, no use of complex technical language. Furthermore, too much business-speak is common in many plans but gives an impression of vague thinking and lack of real world practicality, it can be annoying and a turn-off for the reader. Language may not improve the appeal of your business but it allows the reader to clearly understand your thinking without distractions.

OK, that's what not to do. We cover key aspects of writing an effective plan in our next post.


Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.
Comments

How to write an effective business plan (3/3)

In our last two posts we covered the classic mistakes people make in writing business plans and some characteristics of the most effective plans we have reviewed. Classic mistakes are that the plan is too long, it is blatantly optimistic, it looks like a filled in template, it contains too many broad generalisations, and it is written in language that impairs understanding. Key steps used by writers of effective plans are: being clear who and what the plan is for, convincing themselves about risks before writing the plan, treating the plan as step one of many, and using clear language.

Now we review typical sections that we expect to see in some form in the plans we review:

Plan contents

The bullets below show a typical framework for a plan. This framework is a start point and no more than that. It needs to be cut and changed to tell the story you want to tell in the clearest, most relevant way. With the right mindset and style for the plan, you can adapt the sections below to get your idea across, and generate credibility and interest from your target audience.

Business Plan Template

Executive summary (1 page)

Summary description of the business containing enough for a person to understand it in 5 minutes. One paragraph each on:
– Business background (description of the business)
– Vision and strategy
– Relevant market background and trends
– Revenue and cost expectations (short summary table)
– Key next steps in implementation plan

Business description (1-2 pages)

Background
– Description of the products or services the business will provide, and why they are better or different than what already exists
– Description of the customer groups
– Any other relevant background needed to understand the business
– Any relevant history

Vision
– Description of your vision for the business that will get people excited. Include any tangible targets in terms of sales, customers, product performance, market share, etc.

Strategy
– Summary description of how the business will achieve the vision described above. Include relevant descriptions of how your product or service will developed and marketed, and any other important issues to get right, e.g. technology, sourcing products, etc

Market (1-2 pages)

– Description of the market including estimates of overall size and the opportunity for your product/service
– Description of any market trends that are relevant to demand for your product/service

Competition (1 page)

– Description of direct competitors and alternative products or services customers have to buying your products/services
– Explanation of why your product/service is better or different than the competition

Revenue streams (1 page)

– Description and quantification of all major revenue streams for a three year period, being clear about all assumptions

Costs (1 page)

– Description and quantification of all major costs for a three year period

Implementation plan (1-2 pages)

– Explanation of all major steps required to get business up and running, and performing in the first year. This is best done as a table describing with all major actions with deadlines and responsibilities

Financial projections (1 page)

– 3 year summary profit and loss account
– Description of all major investments

Team background and credentials (1 page)

– One paragraph on each of the team members

So there you have it. At its heart, a great plan will describe a great idea, supported by a great team, but will do so in a brief, clear way, that gets to the point and intrigues the potential backer.

The last plan we wrote was for a start-up sports team and it raised a £40m investment, from the first backer the team approached, within two months. The plan was short and simple with not a SWOT analysis in sight, but it was a great idea and had a great team. The plan was just step one.

Copyright Latitude Partners Ltd. All rights reserved.

www.latitude.co.uk

Please email steve@latitude.co.uk for the full pdf.
Comments